Fitch Places Cigna's Ratings on Negative Watch

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has placed the ratings for Cigna Corp. (CI) on Rating Watch Negative following CI's announcement that it has entered into a definitive agreement under which it will be acquired by Anthem Inc. (ANTM). In the transaction, ANTM would acquire CI in exchange for cash and ANTM stock valued at approximately $49.1 billion. Fitch rates CI's senior unsecured notes 'BBB+' and the Insurer Financial Strength ratings (IFS) of certain CI subsidiaries 'A+'. The acquisition is expected to close in the second half of 2016.

KEY RATING DRIVERS

Fitch's decision to place CI's ratings on Negative Watch reflects the company's planned acquisition by ANTM, a company that Fitch views as utilizing meaningfully more financial leverage, especially following the CI acquisition, than CI has employed in recent years. In Fitch's view, the combined organization's financial leverage is likely to result in a weaker capital and debt-service profile, than that currently maintained by CI. The negative rating watch also reflects the potential operational and earnings disruptions that could arise during the integration of both companies.

Fitch believes that post-acquisition, CI's and its insurance company subsidiaries' credit profiles are likely to converge towards those of ANTM and its insurance company subsidiaries. As a result, Fitch expects CI's and its insurance company subsidiaries' ratings to migrate toward those of ANTM and its insurance company subsidiaries. Fitch rates ATNM's senior debt 'BBB' and the Insurer Financial Strength ratings of certain ANTM subsidiaries' A+'.

Fitch anticipates resolving the rating watch on CI's ratings as details around ANTM's post-acquisition capitalization metrics and operating plans and strategies emerge and progress towards regulatory approvals proceeds.

Key considerations in resolving the rating watch will be balancing the impact of CI becoming part of an organization that utilizes more financial leverage than the company has historically utilized on its own and the potentially disruptive integration issues with the enhanced size and scale benefits a combined CI and ANTM organization would represent. Other key considerations include potential expense synergies as well as post-acquisition plans for managing various branding and operational requirements.

Fitch believes that the combined ANTM - CI would be the largest health insurance company ranked by membership with 53.2 million medical members, benefiting from enhanced size and scale as profit margins are pressured under the Affordable Care Act.

RATING SENSITIVITIES

Due in part to the fluid nature of ANTM's and CI's negotiations that resulted in today's agreement between the companies, Fitch plans to resolve the rating watch after completing more detailed discussions with ANTM regarding its financing, operating and integration plans for CI

Fitch has placed the following ratings on Rating Watch Negative:

Cigna Corp.

--Issuer default rating 'A-';

--Short-term IDR 'F2';

--$1.2 billion Commercial Paper Program 'F2';

--$250 million 5.375% senior notes due March 15, 2016 'BBB+';

--$131 million 6.35% senior notes due March 15, 2018 'BBB+';

--$300 million 5.125% senior notes due June 15, 2020 'BBB+';

--$250 million 4.375% senior notes due Dec. 15, 2020 'BBB+';

--$300 million 4.500% senior notes due March 15, 2021 'BBB+';

--$750 million 4.000% senior notes due Feb. 15, 2022 'BBB+';

--$17 million 8.300% senior notes due Jan. 15, 2023 'BBB+';

--$100 million 7.650% senior notes due March 1, 2023 'BBB+';

--$900 million 3.250% senior notes due April 15, 2025 'BBB+';

--$300 million 7.875% debentures due May 15, 2027 'BBB+';

--$83 million 8.300% senior notes due Jan. 15, 2033 'BBB+';

--$500 million 6.150% senior notes due Nov. 15, 2036 'BBB+';

--$300 million 5.875% senior notes due March 15, 2041 'BBB+';

--$750 million 5.375% senior notes due Feb. 15, 2042 'BBB+'.

Cigna Corp. Subsidiaries:

Connecticut General Life Insurance Company

Life Insurance Company of North America

Cigna Life Insurance Company of New York

Cigna Worldwide Insurance Company

--Insurer Financial Strength (IFS) ratings 'A+'.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

--'Related Criteria: Insurance Rating Methodology' (July 14, 2015).

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988464

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150724005389/en/

Fitch Ratings
Primary Analyst
Doug Pawlowski, CFA
Senior Director
+1-312-368-2054
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Mark Rouck, CPA, CFA
Senior Director
+1-312-368-2085
or
Committee Chairperson
Julie Burke, CPA, CFA
Managing Director
+1-312-368-3158
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: [email protected]

Source: Fitch Ratings

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